Previewing Friday’s CPI Data

Don’t mistake a jump in Friday’s consumer-price data as the start of an inflationary episode.

The Commerce Department is expected to say that its consumer-price index rose 0.3% in January, according to forecasters surveyed by Dow Jones Newswires, adding up to a gain of 2.8% over the past year. January’s rise would represent another modest gain from the 0.2% increase in December.

Consumer prices have staged a remarkable turnaround in the past six months after falling as much as 2% on a yearly basis last July. The increase has been largely driven by a rebound in oil prices, which cratered during the recession to around $40 a barrel. They have doubled since then, pushing gasoline prices up 54% last year and nudging up prices of other goods as well.

Those rising prices haven’t led to much inflation elsewhere. High unemployment means workers don’t have much bargaining power for wage hikes to cover rising costs — a hallmark of inflationary periods.

“If this were happening and we had a 5% unemployment rate, then I think most economists would be very worried,” says Jay Bryson, Wells Fargo Securities global economist. “Today, you just don’t have that.”

He notes that, excluding gasoline and other goods, the consumer-price index for services like rent, education and health care — which make up 60% of the total index — has fallen sharply from a recent high of 4% in mid-2008 to 0.9% as of December.

Meanwhile, even those who worry inflation could eventually take hold if the Federal Reserve doesn’t act aggressively enough to drain the system of liquidity injected during the credit crisis — its discount-rate rise notwithstanding — see little sign of that happening right away.

“That’s more an issue as we get to 2011 and beyond,”says Conrad DeQuadros, an economist with RDQ Economics. “I wouldn’t say we have a short-term fear of an inflation problem.”

If anything, the recent firming of consumer prices has helped soothe fears that the recession would lead to Japanese-style deflation in the U.S., a cycle of falling prices and wages that can be much tougher for policy makers to combat.

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